American Assets Trust (AAT) Q3 2025: Office Leasing Spreads Climb 9% as Spec Suite Strategy Drives Tenant Demand
American Assets Trust’s third quarter revealed a portfolio in transition, with office leasing spreads advancing amid sector headwinds and multifamily pressured by new supply and elevated expenses. Spec suite buildouts and a focus on ready-to-occupy space are accelerating deal flow, while retail remains near full occupancy despite isolated rent setbacks. Management’s guidance raise signals confidence in stabilization, but balance sheet leverage and mixed hospitality trends will require continued vigilance into 2026.
Summary
- Office Leasing Strategy: Spec suite investments and amenity upgrades are accelerating tenant commitments even as deal cycles lengthen.
- Multifamily Headwinds: New supply and expense pressures weighed on NOI, but recent leasing momentum offers stabilization potential.
- Guidance Raised: Upward revision to full-year FFO outlook reflects resilient execution and incremental leasing upside.
Performance Analysis
American Assets Trust delivered a quarter of operational resilience amid a challenging commercial real estate landscape, with funds from operations (FFO) slightly ahead of internal forecasts. Portfolio-wide, same-store net operating income (NOI) was down 0.8% year-over-year, reflecting a mix of segment-specific pressures and pockets of outperformance. Notably, the office segment saw a 3.6% increase in same-store NOI, powered by higher rents and the expiration of abatements, while retail NOI slipped 2.6% due to timing of expense reimbursements and isolated tenant bankruptcies.
Multifamily faced the steepest decline, down 8.3% in same-store NOI, as San Diego digested new supply and higher concessions, though late-quarter leasing gains hint at stabilization. The mixed-use segment, anchored by the Embassy Suites Waikiki, remained under pressure from lower occupancy and rate competition. Liquidity stood at $539 million, and net debt to EBITDA ticked up to 6.7x, with management targeting improvement as key office assets lease up.
- Retail Occupancy Strength: Retail portfolio ended the quarter 98% leased, with positive renewal spreads despite transient credit losses.
- Office Leasing Momentum: 180,000 square feet of office leases signed, with cash rent spreads up 9% and spec suite strategy credited for velocity.
- Mixed-Use Drag: Waikiki hotel performance lagged, with RevPAR down 11.7% year-over-year, amplifying segment volatility.
Expense management and rent collection discipline offset some segment variability, but the quarter’s results underscore the importance of asset and submarket selection in a bifurcated CRE environment.
Executive Commentary
"Our vertically integrated platform, high-quality coastal portfolio, and thoughtful approach to capital allocation continue to provide resilience and opportunity. As always, we remain focused on creating long-term value for shareholders across cycles."
Adam Weil, President and Chief Executive Officer
"We are raising our full year 2025 guidance range to $1.93 to $2.01 per FFO share with a midpoint of 1.97 cents per share. This represents 2 cent increase from our prior guidance midpoint of $1.95 issued in the second quarter of 2025. The upward revision largely reflects year-to-date performance."
Bob, Chief Financial Officer
Strategic Positioning
1. Spec Suite and Amenity-Led Office Strategy
AAT’s focus on building out spec suites, ready-to-occupy office space built without a committed tenant, has been instrumental in driving new leasing. Management reported that 38% of deals year-to-date involved spec suites, with tenants increasingly unwilling to wait for lengthy tenant improvement cycles. This approach, combined with ongoing amenity investments such as the new restaurant and conference center at La Jolla Commons, is positioning AAT’s office assets to capture demand from tenants seeking quality and immediacy.
2. Retail Outperformance Through Scarcity Value
Retail remains a pillar of stability, with virtually no new construction in AAT’s markets and national retail availability at record lows. High occupancy (98%) and positive rent spreads on renewals (4% cash, 21% straight-line) demonstrate the strength of well-located centers. The company continues to focus on securing best-in-class retailers and leveraging demographic tailwinds, even as isolated bankruptcies (e.g., Party City) create transient rent pressure.
3. Multifamily: Navigating Supply and Expense Pressure
Multifamily performance was challenged by new supply and higher operating costs, particularly in San Diego, where concessions and military move-outs weighed on results. However, occupancy improved to 95% post-quarter, and rent increases on renewals (5%) and new leases (2%) indicate underlying demand. Management expects stabilization as supply is absorbed and expenses normalize, with strong locations and operational focus supporting long-term growth.
4. Hospitality and Mixed-Use Volatility
The mixed-use segment, anchored by Embassy Suites Waikiki, saw occupancy and RevPAR fall, reflecting softer tourism and increased rate competition. Management remains confident in the long-term scarcity value of its Hawaii assets, noting recent high-value land transactions and signs of Japanese outbound travel recovery, but near-term headwinds persist.
5. Balance Sheet and Capital Allocation Discipline
Liquidity remains robust, but leverage has risen to 6.7x net debt to EBITDA. The path to deleveraging hinges on stabilizing La Jolla Commons 3 and One Beach Street, with management projecting $0.30 per share in incremental FFO once these office assets are fully leased. The board maintained its quarterly dividend, underscoring a commitment to shareholder returns amid a cautious capital markets backdrop.
Key Considerations
This quarter’s results reflect AAT’s ability to execute in a volatile CRE environment, with strategic asset selection and operational discipline offsetting cyclical headwinds. The following considerations are central to the company’s forward trajectory:
Key Considerations:
- Spec Suite Buildouts Accelerate Leasing: Ready-to-occupy office suites are shortening leasing cycles and capturing premium rents in a selective tenant market.
- Retail Scarcity Drives Pricing Power: Lack of new supply and high occupancy are sustaining rent growth and tenant quality across the retail portfolio.
- Multifamily Stabilization in Sight: Recent leasing momentum and seasonal student demand may offset earlier supply-driven softness in San Diego.
- Balance Sheet Progress Tied to Office Stabilization: Deleveraging plans depend on securing tenants at La Jolla Commons 3 and One Beach Street, with incremental FFO upside as occupancy rises.
Risks
Key risks include prolonged office leasing cycles, particularly if macroeconomic uncertainty or remote work trends further delay tenant decisions. Multifamily remains exposed to elevated supply and expense inflation, while hospitality performance in Hawaii is vulnerable to shifts in tourism flows and rate competition. Balance sheet leverage could remain elevated if office stabilization lags, potentially constraining capital allocation flexibility.
Forward Outlook
For Q4 2025, AAT guided to:
- Continued office leasing progress, with notable momentum at La Jolla Commons 3 and One Beach Street
- Stable to improving multifamily occupancy as supply is absorbed
For full-year 2025, management raised FFO guidance to $1.93 to $2.01 per share (midpoint $1.97):
- Guidance reflects year-to-date outperformance and incremental leasing upside
Management highlighted several factors that could unlock further upside:
- Consistent rent collections from tenants with credit exposure
- Strengthening travel trends at Embassy Suites Waikiki
- Expense normalization in multifamily
Takeaways
American Assets Trust’s Q3 demonstrated the value of asset quality and operational agility in a bifurcated CRE market.
- Spec Suite Leasing Outperforms: The shift to ready-to-occupy office space is driving above-market rent spreads and reducing downtime, positioning AAT’s portfolio for occupancy gains in 2026.
- Retail and Multifamily Resilience: High retail occupancy and early signs of multifamily stabilization support the company’s income base, even as segment-specific pressures persist.
- Balance Sheet Hinges on Office Execution: Deleveraging and incremental FFO growth are contingent on timely stabilization of key office assets, a core watchpoint for investors heading into next year.
Conclusion
AAT’s disciplined execution and focus on high-quality, well-located assets have allowed it to navigate a complex CRE cycle with measured progress. Success in leasing up flagship office properties will be the fulcrum for future growth and balance sheet improvement, while retail and multifamily provide a stabilizing foundation.
Industry Read-Through
AAT’s experience this quarter underscores the growing bifurcation in commercial real estate, where tenant demand is consolidating in high-quality, amenitized, and move-in-ready space. The spec suite trend is likely to accelerate across office REITs, as tenants value immediacy and landlords seek to minimize downtime. Retail’s scarcity-driven pricing power and multifamily’s supply absorption challenges are recurring themes across coastal markets, while hospitality remains tied to global travel flows and local competition. Investors should watch for further divergence between institutional-grade assets and commodity properties as capital and tenant preferences evolve.